The dread that gripped equity markets earlier in the week re-emerged Thursday as U.S. stocks plunged on concern that rising interest rates will drag down economic growth.

U.S. stocks fell to two-month lows after a nine-day swoon, erasing their gains for the year. Thursday’s 3.8 per cent loss took the S&P 500 Index’s decline since its Jan. 26 record past 10 per cent, meeting the accepted definition of a correction. The Dow plunged more than 1,000 points.

The Cboe Volatility Index was more than double its level a week ago. Ten-year Treasury yields fluctuated near their four-year highs, while the yen found traction as a haven from the stock turmoil.

West Texas intermediate crude slid almost to its low for the year following a report showing record production from U.S. fields. Gold fluctuated.

Traders remain on edge after the resurgent threat of inflation and higher bond yields helped trigger the burst of volatility and a pullback across the overheated global equity market.

Bulls may have to question the wisdom of buying the dip when more selling by speculators may be imminent. This week’s Treasury auctions have underwhelmed, raising the possibility that the debt selloff could steepen. Investors are also facing the prospect of Fed tightening, which could cool growth.

“There’s some big-money players that have really leveraged to the low rates forever, and they have to unwind those trades,” said Doug Cote, chief market strategist at Voya Investment Management. “They could be in full panic mode right now.”

U.K. gilts sold off and the pound rose after the Bank of England lifted its forecasts for economic growth and suggested it may need to raise interest rates faster than previously indicated. The euro fluctuated as ECB member Jens Weidmann said the central bank will monitor the impact of the currency on inflation. The yuan earlier fell the most since the currency’s devaluation in August 2015 after China reported a much narrower-than-expected trade surplus as imports jumped.

Meanwhile, the Bank of Russia is set to hold a rates decision Friday, with most economists forecasting a cut.

These are the main moves in markets:

Stocks

The S&P 500 Index fell 3.8 per cent at the close in New York. The Dow Jones Industrial Average lost 4.1 per cent and the Nasdaq 100 Index fell 4.2 per cent. The Stoxx Europe 600 Index dipped 1.6 per cent. The U.K.’s FTSE 100 Index sank 1.5 per cent. The MSCI Emerging Market Index fell 1.2 perc ent.

Currencies

The Bloomberg Dollar Spot Index advanced 0.1 per cent. The euro fell 0.2 per cent to US$1.2244. The British pound increased 0.2 per cent to US$1.3905, the first advance in a week. The Japanese yen gained 0.4 per cent to 108.85 per US dollar.

Bonds

The yield on 10-year Treasuries fell less than one basis point to 2.83 per cent. Germany’s 10-year yield climbed two basis points to 0.76 per cent. Britain’s 10-year yield climbed seven basis points to 1.617 per cent, the biggest surge in five weeks.

Commodities

West Texas Intermediate crude declined 2.2 per cent to US$60.41 a barrel. Gold fell less than 0.05 per cent to US$1,317.19 an ounce. Copper fell 0.5 per cent to US$6,845 per metric ton. The Bloomberg Commodity Index fell 0.2 per cent.